CASE STUDY 2

Case Study #2 : AIR ASIA - NOW EVERYONE CAN FLY

Air Asia was established in 1993 and started operations on 18 November 1996. it was originally founded by the government - owned conglomerate DRB-Hicom. On December 2, 2001, the heavily - indebted airline was purchased by former Time Warner executive, Tony Fernandes's company Tune Air Sdn.Bhd for the token sum of one ringgit.

through the slogan ' Everyone Can Fly ', Fernandes proceeded to engineer a remarkable turnaround turning a profit in 2002 and launching new routes from its hub in Kuala Lumpur International Airport at breakneck speed, undercutting former monopoly operator Malaysia Airline with promotional fares as RM1 ( US$ 0.27)

Air Asia operates schedule domestic and international flights and is Asia's largest low fare, no frills airline. Air Asia pioneered low cost travelling in Asia which then followed by Tiger Airways, Jetstar, Nok Air, Lion Air and Cebu Pacific. It is also the first airline in the region to implement fully ticketless travel and unassigned seats.

Air Asia operates with the world's lowest unit cost of US$ 0.023/ ASK ( available seat per kilometer) and a passenger break-even load factor of 25%. It has hedged 100% of its fuel requirements for the next three years, achieves an aircraft turnaround time of 25 minutes, has a crew productivity level that is triple that of Malaysia Airline and achieves an average aircraft utilisation rate of 13 hours per day.

Air Asia is currently the main customer on the Airbus A320. The company has placed an order of 175 units of the same plane to service its route. On December 27, 2006, Air Asia's CEO Tony Fernandes unveiled a five-year plan to further enhance its route network by connecting all the existing cities in the region and expanding further to Indochina, Indonesia, Southern China (Kun Ming, Xiamen, Shenzhen) and India. The airline will focus on developing its hub in Bangkok and Jakarta through its sister companies, Thai Air Asia. to date with a fleet of 72 air crafts, Air Asia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia and has flown over 55 million guests.

Sources: Compiled from Air Asia, Tony Fernandes - Wikipedia, and from Air Asia.com.

Question 1:

Identify five (5) of competitive advantages used by Air Asia?

* The five competitive advantages used by Air Asia are :-

• Asia's largest low fare.
• No frills airline.
• fully ticketless travel.
• unassigned seats.
• crew productivity level that is triple that Malaysia Airline.
• Low cost travelling in Asia.

Question 2:-

which of the Porter's Generic Strategies were applied by Air Asia in the case study and explained with examples.

According to the Porter's Generic Strategies Air Asia has applied the cost leadership strategies which is they operating their business in a broad market while offered the low cost airline fares. Based on the article, Air Asia run it business not just in domestic but they also expand their routes to the international places. For example, they have expanded the routes of their aircraft to London, Paris and any other countries in the world. Besides, they also come out with their tagline which is "everyone can fly". This tagline has been made as benchmark for their company which they has offered the customer who wants to fly to any destinations with a very cheap and low prices of tickets compared to others airline companies. For example, the price of tickets to Sabah and Sarawak for Air Asia is just around RM 300 something while Malaysia Airlines offered the customer around RM 400 something. From here, it is clearly shows that Air Asia has applied the cost leadership strategies to operate their airline company.

Question 3:-

Based on Porter's Five Forces Model, analyze Air Asia's buyer power and supplier power.

At first buyer power for Air Asia is low because customers do not have any other choices to buy flight tickets from a company that offered their ticket at the low price. At that time only Air Asia has made that offered to their customers through their tagline which is " everyone can fly ". This tagline has it own meaning which is everybody can fly anywhere with a low airline fare that offered by the company. By doing this, Air Asia has created their competitive advantages and the company itself as the first mover which offering the low cost fare for their customer. But now, their buyer power is high because buyers have many choices that they can choose, instead of choosing the Air Asia. It is because the others airline companies such as Tiger Airways, Jetstar, Nok Air and Cebu Pacific has implement or duplicate Air Asia idea which is offering low cost fare to their customer.

It same goes to the supplier power. At the beginning,Air Asia's supplier power is high because it is the only company that implement the low cost fare ideas in the airline markets. So, customers have to buy the ticket from Air Asia if they want to save up their money or want something that is more cheaper than others. When there are competitors that also offering the low cost fare airline, Air Asia supplier power becoming low because at that time the buyers or customers already have a lot of choices that they can select to fly with which also offering the same prices as Air Asia.